Section 223 Schedule 38: Tax Agents: Dishonest Conduct
Summary
1.Section 223 and Schedule 38 make provision about powers to obtain working papers from tax agents who engage in dishonest conduct, impose penalties on them and allow the Commissioners of HM Revenue & Customs (HMRC) to publish their details. The Schedule will come into force by means of a Treasury order, made by statutory instrument.
Details of the Section
2.Subsection (3) provides that an order to bring the Schedule into force may make different provision for different purposes, and may include transitional provisions and savings.
3.Subsections (4)-(6) cover other orders that may be used to make incidental, supplemental, consequential, transitional and saving provisions but only if they are consequential on the draft Schedule.
4.Subsection (7) provides that a statutory instrument, which contains an order under subsection (4), is subject to the negative procedure.
Details of the Schedule
Part 1: Introduction
5.Paragraph 1 provides an overview of the Schedule.
6.Paragraph 2 defines a “tax agent” as an individual who assists others with their tax affairs. The assistance must be in the course of business, so that, for example, general advice by friends, family or volunteer advisers, or broadcasts and lectures is not caught.
7.Under sub-paragraph (2) an individual can be a tax agent even if appointed indirectly.
8.Under sub-paragraph (3) assistance includes providing advice to or acting for a client in relation to tax. Sub-paragraphs (4) to (5) further clarify the meaning of assistance.
9.Sub-paragraph (1) of paragraph 3 defines engaging in “dishonest conduct” as doing something dishonest with a view to bringing about a loss of tax revenue and sub-paragraph (7) provides more detail.
10.Sub-paragraphs (2) and (3) provide that it does not matter whether or not there is an actual loss of tax revenue, or whether the agent was acting on a client’s instructions.
11.Sub-paragraph (4) together with sub-paragraph (6) defines a loss of tax revenue.
12.Sub-paragraph (5) cross refers to Part 6 for the definition of the taxes covered by the Schedule.
Part 2: Establishing dishonest conduct
13.Paragraph 4 applies if HMRC determine that a person has engaged in dishonest conduct.
14.Sub-paragraph (2) and (3) provide that an authorised HMRC officer may notify the person of that determination, stating the grounds (a conduct notice).
15.Sub-paragraph (4) sets out the implications of a conduct notice by reference to later paragraphs of the Schedule (tribunal authorisation of a file access notice and a penalty for dishonest conduct).
16.Paragraph 5 provides a right of appeal for the tax agent against HMRC’s determination of dishonest conduct, setting out the procedure and what the tribunal may do.
17.Paragraph 6 provides for a criminal offence if a person disposes of a material document which could otherwise be sought under a file access notice.
Part 3: Power to obtain tax agent’s files etc
18.Paragraph 7 sets out two cases in which relevant documents may be required by a file access notice. Case A is where a conduct notice has been given without an appeal being made or once the appeal has been resolved. Case B is where an individual has been convicted of a tax related offence of dishonesty but only if it occurred after they became a tax agent. The capacity in which the offence was committed does not matter. In both Cases A and B the tribunal must approve the file access notice.
19.Paragraph 8 allows an officer to require relevant documents by a file access notice to the agent or anyone else who holds the documents.
20.Paragraph 9 describes “relevant documents”. These are any documents used by a tax agent in assisting clients with their tax affairs and can be required even if the agent does not own them.
21.Paragraph 10 describes the documents which can be required under a file access notice.
22.Paragraphs 11 and 12 describe how a tax agent may comply with the contents of a file access notice.
23.Sub-paragraph (1) of paragraph 13 sets out the conditions for approval by the tribunal of the file access notice.
24.Sub-paragraphs (1)(b) and (c) set out that before approving the file access notice the tribunal must be satisfied that there has been dishonest conduct or a relevant conviction, and that the notice is justified in the circumstances.
25.Sub-paragraphs (1)(d) and (e) put conditions on HMRC (in addition to any other requirements deriving from tribunal rules).
26.Sub-paragraph (3) provides that the tribunal’s decision is final. But there is a further right of appeal for a document-holder who is not the tax agent under paragraph 20 below.
27.Paragraphs 14 and 15 set out restrictions on documents that can be required by a file access notice: documents not in the document-holder’s possession or power, material that relates to a pending tax appeal, or which is journalistic or personal.
28.Paragraph 16 provides that a file access notice cannot require production of documents which are more than 20 years old unless the document is of continuing relevance to tax.
29.Paragraph 17 concerns privileged material. Under sub-paragraph (1), a document-holder is not required to provide such material. Sub-paragraph (2) defines privileged material, and sub-paragraph (3) applies regulations made under Schedule 36 to the Finance Act (FA) 2008, covering disputes about whether a document is privileged.
30.Paragraphs 18 and 19 allow HMRC to copy and retain the documents provided and describe the conditions that apply to retention.
31.Paragraph 20 provides a right of appeal against the file access notice on the grounds of onerousness for a document-holder (a third party) who is not the tax agent. It sets out the procedure and the tribunal’s powers.
32.Paragraph 21 provides for a criminal offence where a person disposes of a document required by a file access notice (a required document).
33.Paragraph 22 provides for a civil penalty for failure to comply with a file access notice.
34.Paragraph 23 provides for a daily civil penalty for a continuing failure to comply with a file access notice. This does not apply if a person cannot comply with the notice because the document in question has been destroyed, since it is no longer in the person’s possession or power.
35.Paragraph 24 says that where an officer of HMRC allows extra time for a requirement to be complied with, which is then met, there is no liability to a penalty.
36.Paragraph 25 provides that if a person has a reasonable excuse there is no liability to a penalty. Sub-paragraph (2) sets out circumstances which do not count as a reasonable excuse.
Part 4: Sanctions for dishonest conduct
37.Paragraph 26 says that a tax agent who engages in dishonest conduct is liable to a penalty.
38.Sub-paragraph (2) sets out the minimum and maximum amount of this penalty.
39.Sub-paragraphs (3)-(7) set out the factors to be taken into account in assessing the penalty, including whether the dishonest conduct was disclosed and the quality of that disclosure.
40.Paragraph 27 provides that where HMRC proposes to assess the minimum penalty for dishonest conduct, and there are special circumstances, HMRC may reduce a penalty, stay (desist from) proceedings, or agree a compromise in those proceedings.
41.Sub-paragraph (3) explains what does not constitute special circumstances.
42.Sub-paragraph (1) of paragraph 28 provides that HMRC may publish information about a tax agent who has incurred a penalty for dishonest conduct.
43.Sub-paragraph (2) sets out what information may be published.
44.Sub-paragraph (3) provides that no information may be published if a penalty has been reduced to or below the minimum.
45.Sub-paragraph (4) applies certain provisions of section 94 of FA 2009 to publishing information about a tax agent (time limits and the ability to make representations to HMRC).
46.Sub-paragraph (5) provides that information about an organisation (including a firm or business) may be published in order to make clear the identity of a tax agent who works for that organisation.
47.Sub-paragraph (6) provides an opportunity for that organisation to make representations about publication.
Part 5: Penalties under this Schedule: Assessment etc
48.Paragraphs 29 and 30 provide machinery provisions for HMRC to assess penalties due under this Schedule.
49.Paragraph 31 provides a right of appeal against a decision to impose a penalty or against the amount of any penalty and describes the procedures for appealing.
50.Paragraph 32 describes the means by which collection of a penalty charged under this Schedule may be enforced.
51.Paragraphs 33 and 34 provide that a person is not liable to a penalty under this Schedule for anything in respect of which they have either been convicted of an offence, or are liable to a penalty under specified penalty enactments.
52.Paragraph 35 provides for penalty amounts in this Schedule to be re-valorised by means of a Treasury order if there has been a change in the value of money.
Part 6: Miscellaneous provision and interpretation
53.Paragraph 36 specifies parts of the Taxes Management Act 1970 (TMA) which apply to this Schedule.
54.Paragraph 37 sets out which taxes are covered by this Schedule.
55.Paragraphs 38, 39, 41 and 42 cover how certain terms should be interpreted for the purposes of this Schedule.
56.Paragraph 40 provides that a loss of tax is taken to have been brought about even if subsequently recovered or properly accounted for.
57.Paragraph 43 describes the relationship between this Schedule and other enactments.
Part 7: Consequential provisions
58.Paragraphs 44 to 52 and 58 describe other legislation which is omitted or amended as a consequence of this Schedule.
59.Paragraphs 53 to 57 make consequential amendments to apply the Schedule for the purposes of National Insurance Contributions.
Background Note
60.Tax agents play a crucial role in the delivery of the UK tax system. HMRC is able to accept the majority of returns without checking their accuracy individually because of the work done by taxpayers and their agents to ensure those returns are correct.
61.But there are a small number of tax agents who are prepared to act dishonestly and whose actions can affect a larger group of taxpayers. HMRC needs to be able to deter and penalise this behaviour. It also needs to identify the scale of the dishonesty in order to be able to put matters right. This requires HMRC to be able to access the working papers of the dishonest agent to check and correct their clients’ returns as appropriate.
62.HMRC has existing powers in respect of agents in sections 99 and 20A of TMA, but these apply only to direct tax and do not work as intended. This provision modernises the existing law, extends it to other taxes and
duties and allows HMRC to publish details on its website of dishonest tax agents who are penalised and fail to fully disclose their dishonesty.
63.HMRC has consulted three times on how it should engage with tax agents to raise professional standards. Working with Tax Agents was published in April 2009. Working with Tax Agents: the next stage was published in December 2009 together with draft legislation in February 2010. Revised legislation was published with a discussion document Working with Tax Agents: Dishonest Conduct on 14 July 2011. Draft legislation was also published for comment on 6 December 2011.
64.The measure will be brought into effect by Treasury Order, not expected to be before 1 April 2013.